December market update and investment risks

The following reflects the general views of our Treasury & Investment Office (T&IO) and should not be taken as a recommendation or advice as how any specific market is likely to perform.

These views are as at the end of December 2022.

The value of investments can go down as well as up. Investors could get back less than they put in.

Please remember that past performance is not a reliable indication of the future performance.


Financial markets ended a torrid year on a positive note as equities and bonds recouped some of their previous losses. Despite the gains, both asset classes finished 2022 in negative territory. The reversal was driven in part by signs that inflation was falling, which raised investors’ hopes that central banks might slow their interest rate hikes. China’s sudden relaxation of its zero-COVID policy and optimism about the reopening of its economy also lifted investor sentiment. In equity markets, Europe and the UK were among the best performing regions (in sterling terms). Stocks in Asia ex Japan performed well as Chinese equities rallied. In contrast, US stocks lagged the global market, held back by weakness among mega-cap technology stocks. 

Most bond markets performed well as investors contemplated the prospect of fewer interest rates rises in the coming year. UK government bonds (gilts) advanced as the turmoil that followed the mini budget in September subsided and Rishi Sunak replaced Liz Truss as Prime Minister. Corporate bonds, including riskier high yield debt, also registered gains. 

In terms of currencies, sterling strengthened against other currencies, while the US dollar weakened, having gained in value for most of the year. Elsewhere, oil prices eased amid concerns that a global recession might curb demand, although they rose in 2022 as a whole.

Equities (or shares)

The end of 2022 brought relative calm to a tumultuous year in UK stockmarkets. The quarter began with fallout from the government’s disastrous September ‘mini-budget’, which prompted Bank of England intervention, a new Prime Minister, Cabinet and a more fiscally restrained Autumn Statement. Combined with hopes that inflation may have peaked and interest rates may not go much higher, this helped the market to stage a recovery.

In the US, investors seized upon signs of slowing economic activity and easing inflation as an indication that the Fed might reduce the rate and size of interest rate increases. In December, however, stockmarkets fell sharply as they signalled that interest rates will rise further and remain high. 

European equities rounded off with strong gains but were still in negative territory for the year as a whole. 

The Japanese stockmarket rose as investor confidence was boosted by signs that global inflation rates were beginning to peak, and news that China was easing COVID-19 restrictions. 

What do you mean by Equities?

  • Equities are commonly known as "shares". When a fund buys a company share, it is investing in a company and, in exchange, receives a share of the ownership of that company. Shares give two potential investment benefits:

    • share prices may increase as the value of the company increases.

    • companies may pay dividends - regular payments made to shareholders based on how well the company is doing.

What are the general risks of this type of asset? 

  • Over the longer-term (over 10 years), equities are considered to offer greater growth potential than many other asset types. However, the value of any investment can go down as well as up and so there is a higher risk of losing your original capital than investing in fixed interest securities (see below).
  • The financial results of other companies and general stock market and economic conditions can all affect a company's share price, and consequently the value of any fund investing in that company.

Fixed interest

Following an exceptionally volatile year for fixed income markets, UK government bonds (gilts) proved more resilient in the final quarter. The key driver was the lower-than-expected inflation readings in both the US and Europe, which in turn could allow central banks to slow their pace of rate hikes. In the UK, the transition to a new Prime Minister also helped to calm markets. 

Against this backdrop, gilts delivered a modest positive return, although they remain in significantly negative territory over the year as a whole. UK corporate bonds also saw a strong recovery over the period.

Global bond markets rose, although overall 2022 was still a very poor year. Investors welcomed signs of high inflation coming down and potentially fewer interest rate increases.     

What do you mean by Fixed Interest?

  • Fixed interest securities, more commonly known as "bonds", are loans issued by companies or by governments in order to raise money.

  • Bonds issued by companies are called Corporate Bonds, those issued by the UK government are often called Gilts or UK Government bonds and those issued by the US government are called Treasury Bonds.

  • In effect, all bonds are IOUs that promise to pay you a sum on a specified date and pay a fixed rate of interest along the way.

  • Index-linked securities are similar but the interest payments and redemption value are normally increased by a price index e.g. for UK government index-linked securities, interest payments and redemption value are increased in line with the UK Retail Price Index.

What are the general risks of this type of asset

  • On the whole, investing in Government or Corporate Bonds is seen as lower-risk than investing in equities. To date, no UK government has ever failed to pay back money owed to investors. But with Corporate Bonds there is a risk that the company may not be able to repay its loan or that it may default on its interest payments.

  • Corporate and Government bonds are sensitive to interest rate trends. An increase in interest rates is likely to reduce their value, and hence the value of any fund investing in them.


UK commercial property values suffered from further heavy falls in the final quarter of 2022, with all sectors recording a negative total return in October and November, according to property consultant CBRE (November is the latest month for which data is available). Investor sentiment was undermined by the deteriorating prospects for the economy and higher financing costs for property purchases. Against this backdrop, investors continued to favour higher quality, best-in-class assets, which should prove more resilient in the economic downturn. Lower-yielding parts of the market such as Industrials saw the largest capital falls, whereas capital values in Offices and Retail, which offer higher yields overall in both absolute terms and relative to UK government bonds, fell by less.

What do you mean by Property?

  • For our funds we would mean commercial property investment. This generally means the fund is sharing in the returns from the ownership of some buildings (for example, offices and shopping centres).

  • The value of the property may increase and tenants may pay rent to the owners of the building.

What are the general risks of this type of asset

  • Property can be difficult to buy and sell quickly. Fund managers may have to delay withdrawal of money by customers from a property fund until they can sell some of the buildings the fund invests in.

  • The actual value of a property is what someone is prepared to pay for it - an actual sale value. As sales are infrequent, interim valuations are based on a valuer's opinion and may be revised up or down from time to time. This can affect the value of a fund invested in commercial property, with the value possibly fluctuating significantly and could result in an investor not getting back the amount they originally invested.

  • This leads to a number of risks for funds investing in property:

    • Cash could remain uninvested as property assets can be difficult to buy, leading to lower returns than expected.
    • The value of the fund may be reduced if a large number of withdrawals are requested and it is necessary for properties to be sold at reduced prices.

    • There may be delays removing your money from the fund if property cannot be sold.

    • Property fund valuations may be revised periodically, upwards or downwards.

    • Rental income is not guaranteed. Defaulted rent and unoccupied properties could reduce returns.

    • If the size of the fund falls significantly, the fund may have to hold fewer properties, and this reduced diversification may lead to an increase in risk.

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